Treasurer Scott Morrison says he wants to make sure small businesses “don’t get ripped off by other businesses who deliberately go bust to avoid paying their bills”.

On Tuesday, Morrison used the federal budget to explain how he will do just that, outlining the federal government’s new two-pronged plan to combat illegal phoenix activity.

The first offensive is to make changes to the corporations and tax laws.

This will involve:

bringing in new phoenix offences to target operators who conduct or facilitate the practice;

preventing directors from being able to improperly backdate resignations to escape liability or persecution;

limiting the ability of directors to resign if their resignations would leave a company with no directors;

restricting the ability of related creditors to vote on appointing, removing or replacing external administrators; and

extending the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, which would make directors personally liable for a company’s debts.

The government is also planning to give the Australian Taxation Office expanded powers to retain refunds in situations where there are outstanding tax lodgements.

The effects of phoenixing activity in the economy are wide-reaching, said the government, which used the budget papers to explain how consumers, small businesses and sole traders, employees, and “ultimately all Australian taxpayers” lose out when operators “deliberately misuse the corporate form”.

However, the cost to the budget bottom line of taking this “tough” stance is relatively small.

The government estimates extending the Director Penalty Regime will cost $40 million over the forward estimates, as GST debt is already collected and paid to the states and territories. As the GST and related liabilities have already been recognised, there is no revenue benefit from this measure.

There will, however, be a “small and unquantifiable”, revenue gain over the forward estimates from the expansion of the ATO’s powers to retain refunds.

The government said the new reforms build on a series of other changes resulting from the work conducted by its phoenix, serious financial crime and black economy taskforces, including the introduction of Director Identification Numbers, a black economy and illegal phoenixing hotline and reform to try to stop the misuse and non-payment of the Fair Entitlements Guarantee and the Superannuation Guarantee Charge.

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